Background
Last year, the Companies Act 2016 (“Principal Act”) was amended by the Companies (Amendment) Act 2024 (“Amendment Act”). The Amendment Act was gazetted in the Federal Gazette on 2 February 2024 and officially came into force on 1 April 2024 except for four sections.[i] Subsequently, sections 4, 26 and 28 came in force on 30 November 2024, [ii] while the final section, namely, section 14 came into operation on 31 January 2025.[iii]
The primary objectives of the Amendment Act are to enhance corporate governance and practices, and to strengthen Malaysia’s corporate rescue mechanisms.
This legal update highlights the key changes introduced under the Amendment Act.
Overview of Key Amendments
Expansion of the Corporate Rescue Mechanism through Corporate Voluntary Arrangement and Judicial Management through the Narrowing of the “Non-Applicability Criteria”
The Corporate Voluntary Arrangement (“CVA”) and Judicial Management (“JM”) are pivotal mechanisms for rescuing financially distressed companies. However, the previously restrictive and non-applicability criteria under the law had precluded many companies from utilising these corporate rescue mechanisms to formalise their recovery plans.
With the amendment to section 395 via section 14 of the Amendment Act, CVA is now available to all companies, including those with charges over their property or undertaking. This makes a significant amendment, offering a broader safety net for financially distressed companies while still safeguarding the interests of secured creditors.
This expansion of CVA and JM applies to all companies, except for the few regulated entities under section 14 of the Amendment Act, which are:
(a) a company which is a licensed institution or an operator of a designated payment system regulated under the laws enforced by the Central Bank of Malaysia;
(b) a company, which is approved or registered under Part II, licensed or registered under Part III, approved under Part IIIA or recognized under Part VIII of the Capital Markets and Services Act 2007; and
(c) a company which is approved under Part II of the Securities Industry (Central Depositories) Act 1991.
Similarly, the same revision to the non-applicability criteria has been introduced for JM pursuant to section 403 of the Principal Act. The amendment allows the Court to appoint a judicial manager over an insolvent corporate debtor if there is a reasonable prospect of preserving all or part of the company as a going concern, and where the interests of creditors would be better served through JM as compared to winding up of a company.
Prior to this, the Court has not approved any JM application by public listed companies, largely due to the ambiguities in the Principal Act. The amendment to section 403 now expressly clarifies that JM is available to all companies, including public listed companies, (except the three categories of company specified therein) thereby addressing this legislative gap.
These amendments to sections 395 and 403 significantly broaden the accessibility of corporate rescue mechanisms to companies facing financial distress except for the those companies mentioned above, as they are subject to specialised financial and governance oversight imposed on them by Bank Negara Malaysia or Securities Commission Malaysia.
| Side Note: First JM Application by a Public Listed Company
On 3 July 2024, Sarawak Cable filed an ex parte application for JM, marking the first instance in Malaysia where a public listed company applied for JM following the implementation of the Companies (Amendment) Act 2024. Subsequently, on 9 July 2024, the High Court granted an ex-parte order for the appointment of interim judicial manager. However, this case raised a novel issue regarding the applicability of section 411(4)(e) to public listed companies, particularly when the company’s shares are fully paid and deposited with Bursa Malaysia Depository Sdn Bhd (“the Central Depository”)? In this context, Dato’ Loh Siew Cheang of our firm successfully obtained a declaratory order from the Kuala Lumpur High Court in Originating Summons No. WA-24NCC-539-11/2024, where the Court ruled that section 411(4)(e) of the Companies Act 2016 does not apply to public listed company under JM, as the shares of public listed companies are fully paid and deposited with the Central Depository. Accordingly, any transfer of listed shares effected by the Central Depository under section 5 of the Securities Industry (Central Depositories) Act 1991 and the Capital Markets Services Act 2007 does not trigger the operation of section 411(4)(e) of the Companies Act 2016. |
Strengthen Malaysia’s Corporate Rehabilitation Framework: Development of Provisions Relating to Scheme of Arrangement
In Malaysia, a scheme of arrangement (“SOA”) remains the most widely used mechanism for rehabilitating financially distressed companies. This is due in part to the corporate sector’s familiarity with the SOA framework, as well as the fact that directors retain control of the management of the companies throughout the process. Directors are incentivised to propose a rehabilitation plan with a higher likelihood of success.
The recent amendments under the Amendment Act introduced key provisions aimed at enhancing the SOA framework, aligning it more closely with international best practices and increasing its effectiveness as a corporate rehabilitation tool.
The main policy developments include:
(i) Automatic Moratorium (Section 368(1A))
Introduction of an automatic moratorium period for companies applying for a restraining order under a SOA, providing immediate temporary protection against legal proceedings upon application.
(ii) Group Restraining Order (Section 368A)
A new provision allowing a restraining order to be extended to related companies that play an integral part in the group-wide rehabilitation plan, recognising the interconnected nature of group corporate structures.
(iii) Rescue Financing (Section 368B)
Statutory recognition of rescue financing, allowing companies to obtain new funding during the restructuring process, with priority repayment status subject to Court approval.
(iv) Cram-Down Provision (Section 368D)
Introduction of a cram-down mechanism, which enables the Court to approve a scheme despite objections from certain classes of creditors, provided statutory thresholds are met — thus preventing minority dissent from frustrating viable restructuring efforts.
(v) Mandatory Appointment of Insolvency Practitioners (Section 367)
Requirement for the appointment of a qualified insolvency practitioner to oversee the implementation of the rehabilitation plan, ensuring independent oversight and increasing stakeholders’ confidence in the process.
I. Automatic Moratorium (Section 368(1A))
One of the notable changes introduced by the Amendment Act is the automatic moratorium for a company seeking a restraining order (“RO”) under a SOA. This moratorium lasts for a maximum of two months or until the Court decides on the application, whichever is earlier. During this period, the company is protected from legal proceedings, including winding-up petitions. [iv]
The timeline for RO under the amended regime can be summarised as follows:[v]
To prevent misuse of the RO framework, section 368(3B) provides that the Court shall not grant a RO if one had already been granted within the preceding 12 months of an order involving the following:
- Rescue financing;
- A cram-down mechanism;
- Court approval of a scheme without convening a creditors’ meeting; or
- A related company’s application for a RO tied to a proposed scheme.
While this restriction is intended to safeguard creditors’ interests and prevent unnecessary delays, it could be seen as potentially disrupting the stability afforded to debtor companies during the course of complex restructuring processes. In particular, the restriction could limit the flexibility required for companies undergoing intricate schemes of arrangement.
For instance, in the case of Sapura Energy Bhd, the company and 22 of its subsidiaries successfully applied for and was granted three restraining orders by the Court over a cumulative period of 15 months. This extended period was considered necessary to accommodate the complexity of the proposed restructuring scheme, allowing sufficient time for all terms and conditions to be properly negotiated and finalised. Without the ability to extend the restraining orders as needed, companies like Sapura Energy could face significant challenges in completing their restructuring plans, particularly when dealing with multi-faceted or long-term financial rehabilitations efforts. [vi]
II. Group Restraining Order (Section 368A)
Acknowledging that corporate restructuring often involves a group of related companies, the newly introduced section 368A permits a related company to apply for a restraining order if it plays an integral role in the overall rehabilitation plan. This amendment ensures that restructuring efforts are not undermined by legal proceedings against related companies, which could otherwise jeopardise the success of a group-wide SOA. In such cases, failure to grant a restraining order could result in prejudice to the creditors of the related company, as the inability to coordinate group-level restructuring may compromise the viability of the plan.
III. Rescue Financing (Section 368B)
The newly introduced section 368B provides for rescue financing, defined as financing necessary for the continued survival of a company. The aim is to allow the company to receive new funds and realise a better return on its assets compared to a scenario where it is wound up.
This provision allows distressed companies to continue operating in the ordinary course of business, including making payments to suppliers and creditors, thereby preserving commercial relationships and operational continuity. The availability of rescue financing is critical to the success of a proposed scheme, as it alleviates short-term financial pressure and improves access to much-needed working capital.
Section 368B also addresses the concerns of banks and financial institutions by providing statutory safeguards for lenders. It establishes a more structured policy framework for extending rescue financing, which may encourage existing creditors or third-party investors or “white knights” to inject funds in support of a viable rescue plan.
Importantly, the Court is now empowered to secure debts arising from rescue financing against the company’s assets, subject to specific conditions. In the event the company is subsequently wound up, rescue financing debts are granted “super priority”, ranking above all other unsecured and, in certain cases, even secured debts.
IV. Cram-Down Application (Section 368D)
The cram-down mechanism empowers the Court to compel dissenting creditors to comply with a proposed SOA, even if they vote against it. This provision ensures that a company’s restructuring efforts are not derailed by a dissenting minority, while simultaneously giving protection to the dissenting creditors by ensuring they receive at least the value of their approved claims as compared to a liquidation scenario.
Under the new section 368D, a cram-down application may be made to the Court if the following conditions are satisfied:
(i) The scheme is approved by a majority representing at least 75% in value of the creditors or members or class of members present and voting at the meeting; and
(ii) The scheme is fair and equitable to each class of dissenting creditors and does not unfairly discriminate between the classes of creditors.
This mechanism strengthens the SOA framework by reducing the risk of strategic or unreasonable objections by a minority class.
Alternatively, section 369C introduces the concept of a pre-packaged scheme of arrangement (“Pre-pack Application”). This provision allows the company and its creditor to pre-negotiate and structure a scheme before applying to Court. The Court is empowered to approve the scheme without convening a formal creditors’ meeting, provided that the requisite approval threshold has already been obtained from the relevant classes of creditors. This amendment streamlines the SOA process and can significantly reduce the time and costs involved in obtaining court sanction for a restructuring plan, especially in situations where creditor consensus has already been secured.
V. Mandatory Appointment of Insolvency Practitioners in SOA (Section 367)
To strengthen oversight of the rehabilitation process, section 367 now mandates the appointment of an insolvency practitioner in certain SOA. Specifically, the appointment is required where the proposed scheme involves (i) rescue financing (section 368B); (ii) cram-down (section 368D); (iii) Court approval without a meeting of creditors (section 369C); or (iv) a related company’s application for a restraining order in relation to the scheme (section 368(A)).
The Companies (Amendment) Act 2024 emphasises the role of the insolvency practitioners in overseeing the implementation of the proposed scheme and reporting its status to the Court prior to its approval, to support the success of the restructuring plan.
The appointed insolvency practitioner will chair all scheme meetings, prepare and submit a progress report to the Court. In the case of a cram-down, the Court may require the insolvency practitioner to assist in estimating the amount a creditor is expected to receive under the SOA compared to what it would receive otherwise.
Other Amendments to provisions relating to CVA/JM/ SOA
In addition to the major reforms outlined above, the Amendment Act also introduced several other significant changes aimed at enhancing the effectiveness of Malaysia’s corporate rehabilitation framework:
I. Extension of the Duration of Judicial Management Order Beyond 12 months (Sections 406(1) and (2))
Sections 406(1) and (2) provide that a JM order shall remain in force for an initial period of six months from the date of the order. This period may be extended to a longer period as the Court may allow under the Amendment Act.
Recognising that certain circumstances may require more time for the judicial manager to formulate and implement a comprehensive rehabilitation plan, the amendments to sections 406(1) and (2) now provide flexibility to extend the duration beyond the previous 12-month limit. This ensures that the judicial manager is afforded sufficient time to carry out their duties, including formulating appropriate recommendations in accordance with the terms imposed by the Court.
II. Super Priority for Rescue Financing for Judicial Management (Section 415A)
Mirroring the provisions applicable to companies undergoing a SOA, the newly introduced section 415A allows a company under JM to obtain rescue financing.
With this provision, the Court is empowered to approve and secure debts arising from any rescue financing against the property of the company, subject to specified conditions. In the event of a winding up, these debts are granted ‘super priority’, ranking above the preferential and other unsecured debts.
This amendment provides much-needed assurance to potential lenders and facilitates access to funding for companies under JM seeking to implement viable turnaround plans.
III. Recovery of Secured Property During Voluntary Arrangement (Sections 398A and 411(5))
The amendments introduced under sections 398A and 411(5) provide relief to companies undergoing insolvency proceedings by allowing secured creditors to take possession of, exercise rights over or recover secured property during the moratorium in a voluntary arrangement or JM, subject to the specific circumstances of the secured assets. The objective is to minimise potential losses to both the company and its secured creditor, and to ensure that secured assets are not left idle or allowed to deteriorate during the restructuring process.
For instance, secured creditors may take possession of perishable goods or machinery under lease agreements that are not being utilised by the company during the restructuring period. This allows perishable goods to be preserved before they expire and spares the company from being invoiced for stock that is no longer usable or needed in the course of the arrangement.
In the case of machinery, if the company lacks adequate resources to maintain the equipment, leaving it unused could result in its deterioration. By permitting secured creditor to reclaim such machinery, it ensures that the machinery is preserved in good working condition, thereby protecting the value of the asset for the benefit of both parties.
This also serves to reduce the company’s outstanding liabilities to the secured creditor, as the return or recovery of the asset prevents the accumulation of further costs related to its upkeep, maintenance or depreciation.
IV. Protection for Essential Goods and Services (Section 430A)
Section 430A provides that, in the context of a compromise or arrangement, namely, a voluntary arrangement or JM, any insolvency-related clause in any contract for the supply of essential goods and services cannot be enforced against the company solely on the basis that it is subject to such proceedings.
This means that suppliers are required to continue performing their obligations under the contract, thereby enabling the company to maintain access to essential supplies and continue trading throughout the rescue process. This provision facilitates the continuity of contracts critical to the company’s operation during restructuring, such as the supply of water, electricity or gas.
Strengthening the Beneficial Ownership Reporting Framework
Prior to the amendment, sections 51 and 56 established the beneficial ownership framework, requiring companies to obtain, verify and record information relating to their beneficial owners. Companies are also required to keep this information updated and lodge it with the Registrar designated under the Companies Commission of Malaysia Act 2001.
The Amendment Act strengthens the existing beneficial ownership reporting framework to bring it in line in with international standards, including those set by the Financial Action Task Force and the Organisation for Economic Co-Operation and Development as well as implementing international best practices.
The primary objectives of these standards are to combat money laundering, terrorist financing and other illicit activities such as corruption and tax evasion. In line with this, the Amendment Act introduces a more comprehensive beneficial ownership reporting framework under the new Division 8A of Part II, which includes:
I. Section 60A – the Criteria of a Beneficial Owner
The new section 60A defines a beneficial owner as an individual or natural person who ultimately owns or controls a company through share ownership and includes any person who exercises ultimate effective control over the company.
The Registrar has issued guidelines to assist companies in identifying their beneficial owners for the purposes of identifying a beneficial owner, by outlining six criteria in aid of determining a beneficial owner under section 60A :[vii]
(i) Criteria A: The individual holds, directly or indirectly, not less than 20% of the shares of the company;
(ii) Criteria B: The individual holds, directly or indirectly, not less than 20% of the voting shares of the company;
(iii) Criteria C: The individual has the right to exercise ultimate effective control whether formally or informally over the company or the directors or the management of the company;
(iv) Criteria D: The individual has the right or power to directly or indirectly appoint or remove a director or directors who hold the majority of the voting rights at the meeting of directors;
(v) Criteria E: A member of the company and, under an agreement with another member of the company, controls alone a majority of the voting rights in the company; or
(vi) Criteria F: The individual holds less than 20% of shares or voting rights but exercises significant control or influence over the company.
An individual is identified as a beneficial owner if he or she satisfies any one of the six (6) criteria above. This may be determined based on the company’s internal records such as constitution, register of members, minutes and resolutions or other documents indicating control or influence. A company may identify and record more than one (1) beneficial owner, depending on its findings.
II. Section 60B – Register of Beneficial Owners of the Company
Companies are required to maintain a register of beneficial owners, which must be made accessible to law enforcement agencies, competent authorities and beneficial owners themselves. The purpose of this register is to ensure comprehensive and up-to-date beneficial ownership information is available to assist law enforcement agencies in investigating serious crimes committed through business entities.
This reporting requirement applies to all companies registered under the Companies Act 2016, including foreign companies[viii], unless exempted under section 60E of the Companies Act 2016. The exemption is intended to avoid duplication where similar obligations exist under other written law. However, exempted companies are still required to notify the Registrar of their exempted status and to provide the information of their senior management to the Registrar.[ix]
Under subsection 60B(9) of the Companies Act 2016, access to the company-level register of beneficial owners is granted to the following:
(i) Law enforcement agencies and competent authorities, in the course of carrying out their duties under the respective written laws;
(ii) Beneficial owners; and
(iii) Persons authorised by the beneficial owner.
In addition to the above, public authorities and reporting institutions gazetted under the Companies Act 2016 will also have access to the register of beneficial owners lodged with the Registrar.[x]
III. Section 60C – Power of a Company to Obtain Beneficial Ownership Information
Section 60C empowers a company to request information relating to beneficial ownership from its members, any person identified as a beneficial owner, or any person who possesses information relating to a beneficial owner of the company. The responsibility to report beneficial ownership information under this provision extends to the board of directors, company secretaries, agents, members of the company, beneficial owners and any person who receives a notice under section 60C.[xi]
IV. Section 60D – Duty of an Individual to Notify a Company of His or Her Status as a Beneficial Owner
Section 60D imposes a statutory duty on an individual to notify the company if he or she is a beneficial owner of the company. The individual is also required to notify the company of any changes to his or her status as a beneficial owner or to any particulars recorded in the company’s register of beneficial owners.
Enhancement of Corporate Governance & Practices
The Amendment Act also introduces several amendments aimed at enhancing corporate governance and facilitating business operations in line with the evolving needs of the corporate community. Key amendments with notable impact on businesses are:
I. Publication or Advertisement on Website (Section 612A)
Companies may now use the official website of the Companies Commission of Malaysia (“CCM”) to publish notices and advertisements, replacing the previous requirement to publish in widely circulated newspapers throughout Malaysia. This addresses the practical challenges arising from the declining circulation of physical newspapers and is intended to reduce the costs associated with statutory advertising.
II. Auditor Independence (Sections 264(4A) and (4B))
The Registrar is now empowered to issue guidelines to preserve auditor independence in situations where an auditor’s spouse is employed by the company or any entity within its group.
III. Reporting by Liquidators (Sections 433(4D) and (4E))
Liquidators are now required to report their particulars to the Registrar once their licence has been approved by the Accountant General’s Department.[xii]
Conclusion
The enhanced provisions on corporate rehabilitation under the Amendment Act have significantly broadened the applicability of Malaysia’s Corporate Rehabilitation Framework. These include the introduction of the pre-pack scheme of arrangement, the cram-down mechanism to expedite the Court approval for SOAs and the recognition of super priority status for rescue financing. Collectively, these developments are expected to encourage greater utilisation of the corporate rescue mechanisms available to financially distressed companies in Malaysia.
We trust the above provides a useful update on the recent developments in the Companies (Amendment) Act 2024 landscape in Malaysia. If you have any questions or concerns about the Amendment Act or the Principal Act, or if you require any assistance in reviewing your company related matters, please do not hesitate to contact us.
This Legislative Update is contributed by Kelvin Seet, Vendee Chai, Dennis Yuean, Lim Lay Yee with the assistance of Lee Yie Shyuan (Associate, Cheang & Ariff).
[i] Gazette Notification P.U.(B) 118
[ii] Gazette Notification P.U.(B) 475.
[iii] Gazette Notification P.U.(B) 53.
[iv] Section 368(1A) of the Companies (Amendment) Act 2004; the Amended Act now clarifies the type of proceedings that are restrained.
[v] Initial RO Period: Section 368(1A) of the Companies (Amendment) Act 2004; Extended RO Period: Section 368(3A) of the Companies (Amendment) Act 2004
[vi] Bursa Malaysia’s announcement, proposed scheme of arrangement and restraining order under sections 366 and 368 of the Principal Act for Sapura Energy Berhad and its subsidiaries dated 9 June 2022 https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_det9. ails?ann_id=3266802
[vii] Guidelines for the Reporting Framework for Beneficial Ownership of Companies revised on 10.1.2025 by Companies Commission Malaysia
[viii] Section 573A of the Companies (Amendment) Act 2024 states that Division 8A of Part II shall be applicable to foreign companies, including the obligation to annually submit beneficial ownership information as provided under paragraph (ha) of section 576(2) and the address of the register of beneficial owners under paragraph (hb) of section 576(2) of the Companies (Amendment) Act 2024
[ix] FAQ Companies (Amendment) Act 2024 [Act A1701] by Companies Commission Malaysia, https://www.ssm.com.my/Pages/Legal_Framework/Document/FAQ%20CA%20(Amendment)%202024.pdf
[x] Paragraph 62 of the Guidelines for the Reporting Framework for Beneficial Ownership of Companies revised on 10.1.2025 by Companies Commission of Malaysia
[xi] Section 1 of the Guidelines for the Reporting Framework for Beneficial Ownership of Companies revised on 10.1.2025 by Companies Commission of Malaysia
[xii] Companies Act 2016: Practice Note No. 6/2024, Notification on the Approval as an Approved Liquidator under Subsection 433(4D) of the Companies Act 2016
